Autor/es:
Johan Norberg
Ponente/es:
Johan Norberg
Lugar:
Circulo de Empresarios
The Benefits of Global Capitalism
Johan Norberg, Circulo de Empresarios, Madrid 13 June 2002
In the 1960s two Swedes visited Asian countries, such as India, Indonesia, Malaysia, China, and they despaired about the poverty they saw everywhere. They could not bring themselves to believe in a hopeful future, and they thought socialist revolution, possibly, was the only way out for many of these countries. In the Indian village of Saijani, they met Bhagant, a young, untouchable poor agricultural worker, illiterate, who lived in dirt and struggled to survive the day.
30 years later, when they returned to the countries in which they had travelled thirty years earlier, they could not believe how wrong they had been to despair about the abject misery and imminent disaster they saw. Now they saw that more and more people had been liberated from poverty, hunger, and insanitary conditions.
When they meet Bhagant again, now an old man, his house is built in brick instead of mud, all his neighbours now have shoes on their feet and clean clothes – not rags – on their backs. His children’s children all goes to school. Outdoors, the streets now have drains, and the fragrance of tilled earth has replaced the stench of excrement and garbage. Thirty years ago Bhagant didn’t know he was living in India. Today he watches world news on television.
This development has resulted not from socialist revolution but, on the contrary, from a move in the past few decades towards greater individual liberty. International exchange and the freedom to choose have grown; investments and development assistance have transmitted ideas and resources. Benefit has been derived from the knowledge, wealth, and inventions of other countries.
The biggest change of all is in people’s thoughts and dreams. Television and newspapers bring ideas and impressions from the other side of the globe, widening people’s notions of what is possible. This means new liberties for women who were always oppressed, now they have bigger opportunities to get a job of their own, and therefore get more independence from the husband. New financial markets means that the farmers who need money for education or the farm don’t have to go to a loan shark who collect payment in the children’s future work – but can go to the bank. When new corporations enter, and it is possible to choose between different jobs, the total control the big landowners used to have, vanish.
Everyone in Bhagant’s generation was illiterate. In his children’s generation, just a few were able to attend school, and in his grandchildren’s generation everyone goes to school. Things have improved, Bhagant finds. Liberty and prosperity have grown. Today children are the big problem. When he was young, children were obedient and helped in the home. Now they have grown terribly independent, making money of their own. This can cause tensions, but it isn’t quite the same thing as the risk of having to watch your children die.
This progress in these countries is very slow. But it is faster than ever before. The stand taken by you and me and other people in the privileged world on the burning issue of globalisation can decide whether more people are to share in the development which has taken place in Bhagant’s village or whether that development is to be reversed.
The progress
The most important thing that has happened since this first wave of industrialisation and development in the 19th century is its spread all over the world in the last decades. During the last 50 years, global poverty has declined more than in the 500 years before, combined. In the last 30 years, the average income in developing countries has been doubled. In only the last two decades, the proportion in absolute poverty – that is people with an income below $1/day – has been reduced from 31 to about 20 per cent – even though total population has increased by about 1,5 billion people this also means a reduction in absolute numbers for the first time in recorded history – about 200 million people.
Other indicators of well-being in the third world show the same pattern. When you have resources, you can increase living standards.
During the last 50 years illiteracy among those becoming adults has been reduced from 70 to 25 %. Infant mortality has been reduced from 18 to 8 %. Life expectancy has gone up from 46 to 64 years. During the last 30 years chronic hunger has been reduced from 37 to 18 %.
In other words, these indicators are better in the developing countries today, than they were in the richest countries a hundred years ago. Why has this happened?
My answer is that it is a result of the fact that several things that used to be the exclusive property of Western countries have begun to spread over the world, such as wealth, investments, corporations, ideas, means of communication, science, technology, medicines, and so on. The funny thing is that this is exactly what is called, a bit carelessly perhaps, globalisation. In Bhagant’s India, that tried protectionism and state control after independence, this is a result of the economic specialisation in the 80s and the liberalisation in the 90s.
The anti-globalisation movement claim that globalisation creates poverty and inequality. They are half right. Considering poverty they are utterly wrong, as we saw poverty is decreasing in the decades of globalisation. But they are right that this is an unequal world. The major determining factor for an individual’s living standard and opportunities is on what latitude he happens to be born. 20 % of the population consumes 80 % of the world’s resources. But this does not mean that they, that is, us in the North, take these resources from the rest of the world. No, we create 80 % of the output, of the new resources every day. And this hasn’t to do with us being smarter or more hard-working than the rest. This has to do with the fact that we happen to have the liberty to use our intelligence in the way we see fit, and that we have the freedom to work for our own benefit – freedoms people in the South have to a much lesser degree.
There is an unequal distribution of wealth in the world, but that is because of the unequal distribution of capitalism. Those who have capitalism grow rich; those who don’t stay poor. If we destroyed capitalism, we would all be poor – but equal.
By production and growth, you produce more wealth, and capitalism encourages ever better and ever more efficient production, otherwise you are put out of business, it encourages and rewards long term investments in better production. Free trade is fair trade, almost by definition, because a deal is not made unless both parties think that they gain something from it. Unlike in the football championships, both sides win.
The greater the degree of economic freedom in a country, the more chance that country has of attaining higher prosperity, faster growth, a higher standard of living and so on. If we divide the world into five groups according to their degree of economic liberty, such as the Canadian Fraser Institute has done, we see that the freest countries are ten times as rich as the least free and they had an annual growth rate of 2.3 % during the 90’s whilst the least free had an annual negative growth of 1.5 %. Most interestingly, people in the freest countries live on average 24 years longer than in the least free countries.
Asia vs Africa
An interesting illustration of this is the developing countries in the last 50 years. In Latin America and Africa governments wanted self-sufficiency and state monopolies. The result was industries that grow ever more inefficient behind protectionist barriers. In the end they couldn’t even afford the machinery needed for production. The economies collapsed about 20 years ago and left the population with huge debts.
Contrast this with the South East Asian countries which used the international division of labour with an export-oriented policy. They did what they did best and imported the rest. They had heavy government intervention, but in a way that was controlled by market signals, when a corporation wasn’t competetive, it was put out of business. These countries now have an almost European living standard.
In the mid-60’s Zambia was twice as rich as South Korea, now South Korea is 27 times as rich as Zambia. This cannot be explained by intelligence or work ethics. The other part of Korea, North Korea – and Burma – another of those South-East Asian economies, weren’t as lucky. They have a centrally planned and self-sufficient policy, and they are in stark contrast to their neighbours, stuck in deepest misery.
On the other hand there are African countries that have tried some liberalising reforms, however slowly, such as Botswana, Mauritius, Ghana and Uganda, and they aren’t stuck in the same poverty as the rest of the continent, but have instead shown growth and some reduction in poverty.
We can see this all around the world. We see that China and India begin to make quick progress when they start to deregulate their markets, we can see that free trading countries such as Chile and Mexico grow quickest in Latin America, and we can see this even in the severely planned economies of the Arab world. Small Arab countries that have made liberal reforms, such as Bahrein and Qatar, have grown quickly.
Globalisation means freedom
Economic liberty means both economic progress and more liberty, but it also a chance of attaining political freedom. In the long run it is hard for dictatorships accepting economic freedom to avoid political liberty as well. In country after country during recent decades, we have seen rulers who have granted their citizens the right to choose goods and invest freely also being forced to give them a free choice of government. This happened to the Southeast Asian and Latin American dictatorships. Mexico’s single-party state collapsed a few years after the country had opted for free trade, Suharto’s dictatorship collapsed like a house of cards in the wake of the Asian crisis, and now we can see some of the first democratic power shifts to have taken place in Africa, in the very states which have committed themselves to more open markets.
People who grow richer, are better educated and are accustomed to choice, will not accept that other’s make choices on their behalf, and so the market economy often leads to democracy. A decentralised economic system makes possible the establishment of groups independent of the political power, which in turn is a basis for political pluralism. International surveys of economic freedom have shown that citizens who are entitled to trade internationally are roughly four times likelier to enjoy political democracy than those who do not have this right. This is partly why democratic activists in China wanted their country to join the World Trade Organisation, while old communists and the army were opposed: That way transparency and decentralisation lie, added to which, a dictatorship which has always acted tyrannically and arbitrarily will be obliged to conform to an impartial international code.
In that case, how can so many people, from protesters to professors think that globalisation and trade creates poverty. One of the reasons is that they think that after the fall of communism, there is only capitalism, and what they call neo-liberalism left in the world. And in that case, if there are still problems left in the world, poverty, sickness, inequality, etc, we must blame this on capitalism. But then they forget that capitalism is solving these problems, quicker than anything has before. Blaming capitalism for the huge problems in Africa, the world’s least democratic, capitalist, and globalised continent, is a bit like blaming doctors for your bad health when you haven’t visited a doctor.
Another reason might be that they don’t really understand what globalisation is. In his recent book, Globalisation and its Discontents, Nobel prize winner, Joseph Stiglitz claim that globalisation impoverish people, but by globalisation he means the International Monetary Fund. But whether or not it was wrong of the IMF to call for higher interest rates in East Asia during the crisis of 1997, it does not have much to do with globalisation’s merits. The IMF is a political institution, which tries to direct economies with the tax payer’s money, and it has the same problems as other government institutions, and aid agencies. Globalisation is something else, it is our everyday, voluntary actions, what we buy, where we travel, where we invest.
Many feel powerless at the prospect of globalisation, and this feeling certainly comes easily when faced with the decentralised decisions of millions of people. If others are at liberty to run their own lives, we have no power over them. But in return we acquire a new power over our own lives. This kind of powerlessness is a good thing. There is no one in the driving seat, because all of us are steering our own lives in much more ways.
The Internet would wither and die if we did not send e-mails, order books and download music every day through this global computer network, no company would collect goods from abroad if we didn’t order them, and no one would invest money over the border if there were no entrepreneurs there willing to invest in response to customer demand. Globalisation consists of our everyday actions. We eat bananas from Ecuador, drink tea from Sri Lanka, watch American movies, order books from Britain, work for export companies selling to Germany and Russia, holiday in Thailand and save money for retirement in funds investing in South America and Asia. Resources may be channelled by finance corporations and goods carried across frontiers by business enterprises, but they only do these things because we want them to. Globalisation takes place from beneath, even though politicians come running after it with all manner of abbreviations and acronyms – EU, IMF, WB, UN, UNCTAD, OECD – in an attempt to structure the process.
The critics call globalisation “corporate globalisation”. That is a silly word. Corporations have their biggest power in closed societies, with privileges and tariffs where other corporations can’t compete and consumers can’t chose. In such societies, such as Latin America after the Second World War, corporations can make bad and expensive products – the people are forced to go there and work for them anyway.
Globalisation is a way of giving corporations more freedom to trade and invest but at the same time giving them less power. On a free market, corporations are like waiters, they are free to offer you the menu, but if you are not interested you can go somewhere else. Free trade means that other waiters, even foreign ones, can offer competing menus! You are in charge. It might be corporations and banks that transport goods and capital over the borders, but if it weren’t for the fact that there was a popular demand for them to do that, they would not do it.
Globalisation is controlled by us, the people!
And actually it benefits the poor most. It is not a problem for the developing countries that there are rich countries, as the anti-globalisation movement seems to suggest. On the contrary, it is a great opportunity. 130 years ago Sweden was helped by the fact that countries such as England and France were much richer and more industralised than us. It meant that we could use ideas and technology directly, which cost them much in time and money to develop from the beginning. Multinational corporations that invest in poor countries bring them new machinery, better technology, new management and production ideas, a larger market and education of workers, which increase their productivity and wealth. 130 years ago Sweden could borrow capital from England to invest and develop our production and infrastructure, we could sell them more goods, and could in our turn buy more advanced goods. And how did we repay them? By having much higher growth rates!
Statistics clearly show that open poor economies grow faster than open rich countries. Free trade makes the rich richer – and the poor richer – but the rich do not benefit as quickly as the poor! The possibilities for quick growth for poor countries are much bigger the more evolved the rest of the world is. When England began to double its wealth from 1780, it took 58 years, when Japan did the same a hundred years later it took only 34 years, and when South Korea did the same another hundred years later, it took only 11 years. When countries are linked to each other with trade and capital movements, the poor seem to gain most.
Protectionism
And here we come to what should be the true concern about Western countries. Not that they are trying to trick the developing countries into some sort of neo-liberal globalisation, but that they are shutting them out from it.
Over the last 50 years, we have liberalised trade all over the spectrum, with two exceptions, textiles and garments and agricultural products. And the goods the EU and the US doesn´t stop with tariffs and quotas, it stops with anti-dumping measurements, bureaucratic rules of origin, the precautionary principle, environmental protection measures and so on. The United Nations Trade and Development Programme, claims that developing countries lose something like 700 billion dollars annually in incomes from exports, because of our tariffs and quotas. That is 14 times more then they get in foreign aid every year. We destroy their possibilities, at the same time that we deny ourselves better and cheaper products and more specialisation and efficiency.
The most bizarre aspect of this is that we hurt ourselves with this policy. The French economist Patrick Messerlin has shown that the few jobs the European Union protect with protectionism are saved at a cost of about 200 000 $/job, which is almost ten times more than the average wage in those industries. We could give each worker a Roll’s Royce instead, every year. The total cost of EU-protectionism amounts to 5-7 per cent of GDP in the European Union, that is almost three Sweden every year – and who could say no to one Sweden every year?
After the fall of the Soviet Union, and the economic reforms in China there are only three centrally planned economies left in the world, North Korea, Cuba – and EU’s Common Agricultural Policy. The CAP does not only keep third world exporters off the market with huge tariffs and quotas, and billions of dollars to European farmers, but by selling the subsidised surplus on the international market, the European Union, defeats them in the third world as well.
The most recent calculations show that the annual cost to consumers and taxpayers of OECD’s 29 member countries’ barriers and support for agriculture and horticulture amounts to 360 billion dollars. Such a large sum is difficult to grasp, but it is large enough to pay for a business class, round-the-world air ticket for each of the 56 million cows in these countries, and they could still have $2 800 spending money for their stopovers in the US, Europe and Asia. And they could have this sort of trip every year. This much we spend to destroy free trade, and the possibilities for poor countries to develop their own economies.
If the rich countries are sincere in their rethoric about global justice and development, they must abolish this protectionism. And that, by the way is the reason for the title of my book. We have some sort of capitalism in our part of the world, when we have freedom to own, compete and trade without government intervention. But we will have global capitalism only the day when the rest of the world has the same liberties. I think that prospect deserves a defense.
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